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China Tariff Could Hit Mailers in the Bedroom

Marketers of wooden bedroom furniture may be saying good-night to cheap imports from the People’s Republic of China. By the end of the summer, a proposed “antidumping” duty could price such products out of the range of catalogers and consumers.

A trade petition filed in October by a group of domestic furniture manufacturers and trade unions accuses Chinese manufacturers of dumping bedroom furniture onto the U.S. market. Antidumping laws target unfair pricing practices, such as price discrimination and below-cost sales that reflect protectionism, cartelization, subsidies, and other “structural defects” in foreign markets, according to Washington-based think tank The Cato Institute. The petition calls for duties of 159%-441% to be levied against wood bedroom furniture from China.

The 27 U.S. companies and four unions that make up the coalition include the American Furniture Manufacturers Committee for Legal Trade and its committee members; Industrial Carpenters Local 721; and the Teamsters, Chauffeurs, Warehousemen and Helpers Local 991.

If the U.S. International Trade Commission (ITC) and the U.S. Department of Commerce (DOC) approve of the petition, it could become law by July. They began investigating the dumping charges last fall. In January the ITC determined that there is a “reasonable indication” that U.S. manufacturers are being hurt by imports of wooden bedroom furniture from China at less than fair value. As of early May, the issue was still up in the air.

In the meantime, the Bush administration on April 28 rejected a trade case filed by the AFL-CIO. The union on March 16 had petitioned for tariffs of up to 77% on all goods imported from China, claiming that the repression of workers’ rights in China gives that country an unfair trade advantage over American companies.

Regardless of this latest decision, “things could go either way at the last minute,” says Laura Champine, home products analyst for Memphis-based investment firm Morgan Keegan. “But most industry observers believe there will be some sort of tariff put in place that will probably vary from manufacturer to manufacturer.” She believes that passage of 30%-plus duties on wooden bedroom furniture from China is inevitable.

The case for a tariff

Lloyd Wood, a spokesperson for the Washington-based American Manufacturing Trade Action Coalition (AMTAC), a nonprofit manufacturers’ trade group that supports the antidumping petition but didn’t sign it, notes that there have been “strong sentiments expressed by both sides on the petition.” He adds that the outcome of the case could have broader ramifications for other Chinese imports.

From both the petitioners’ and AMTAC’s point of view, “manufacturers are rightfully outraged about the dumping going on while they have to play by a certain set of rules,” Wood says. With the U.S. running a $124 billion trade deficit with China, “you have this phenomenon of a nonmarket economy dumping into a market economy — or private American companies competing with [Chinese] government-backed companies,” he says.

According to AMTAC, there were 575,500 furniture and related manufacturing jobs in the U.S. as of March, 6,400 fewer than March 2003. What’s more, the number of furniture manufacturing jobs has dropped 14.6% — or 98,000 jobs — since January 2001, when there were 673,700 jobs.

If implemented, the tariff would “send a strong message out there that you can’t go to China and source whatever you want,” Wood continues. “The tariff could affect not just people in bedroom furniture but also those in other industries where this kind of dumping is out there, such as some textile markets.”

The case against

The Furniture Retailers of America (FRA), a group of more than 60 U.S. furniture retailers and catalogers, are fighting the petition. Catalogers and retailers involved in the FRA include The Bombay Co., J.C. Penney, and Rooms to Go.

“This is one of the most cynical trade cases brought before the ITC in recent memory,” William Silverman, an attorney with Hunton & Williams who is representing the FRA, told news portal China Daily earlier this year. “Once retailers went to China directly, domestic producers responded by filing this dumping case.”

Speaking on behalf of the FRA, Michael Veitenheimer, vice president/general counsel for Bombay Co., describes the petition as “poorly thought out. They say they want to bring manufacturing jobs back to the U.S. But all that’s going to happen is there will be a huge disruption to consumers while everybody moves their imports to other countries.”

The bottom line, Veitenheimer says, is that “if the petitioners are successful it won’t be possible to source bedroom furniture from China — there will be no [such] imports from China anymore.” And unless marketers can find alternative sources, “they’ll go out of business, need to have layoffs, or need to change in another way.”

In fact, one of the original petitioners, Hooker Furniture, changed its stance in February and withdrew its name from the petition. In a statement, the company said that “we have come to believe that the potential adverse effects on our relationships with our customers and international suppliers outweigh the benefits of continuing to actively support the petition.”

Taking action

According to Champine, China manufactures about 40% of all wood furniture sold in the U.S. The reason the bedroom furniture makers are seeking the tax is because bedroom furniture is among the only wood furniture still made in the U.S., she says.

Most marketers that sell wooden bedroom furniture don’t import exclusively from China. “We’ve always used various sources in the Far East in addition to China,” Veitenheimer says about Bombay Co. “We’ve laid out plans to move our production to another country out of China if the antidumping duty takes place. But it will still be more expensive, because we’ll be starting with new factories in new countries.”

Williams-Sonoma has already started moving production from China, says Pat Connolly, executive vice president/chief marketing officer for the San Francisco-based cataloger/retailer. The company, which sells bedroom furniture through its Pottery Barn division, does buy some furniture from China, Connolly says, “so it’s an issue for us, but not a big one, because we source all over Asia.”

Because she thinks some sort of tariff is inevitable, Champine recommends that marketers “look to other low-cost countries as a source of furniture.” Some new sources may include Indonesia, Brazil, Chile, and South Vietnam.

Bedroom Furniture Under Fire

Catalogers that import bedroom furniture from China should be concerned about the following types of products — all included in the U.S. manufacturers’ petition for steep tariffs: